When is backup withholding due

The payor will be considered to have exercised reasonable care if the payor uses the name and taxpayer identification number or names and taxpayer identification numbers if a joint return was filed by the payees provided on the notice from the Internal Revenue Service or from a broker as prescribed in paragraphs b 1 i and 2 of this section and in certain circumstances identified in this paragraph b 3 iii any account numbers provided by the Internal Revenue Service in locating all accounts of a payee or payees.

If a payee uses a different name on an account than the name stated on the notice from the Internal Revenue Service or from a broker for instance, due to marriage or adoption and the payor can associate both names with the payee using records kept in the ordinary course of business, the payor will be treated as exercising reasonable care if the payor uses both names to locate accounts of the payee.

If the taxpayer identification number is not provided to the payor or broker by the Internal Revenue Service , or if the taxpayer identification number provided by the Internal Revenue Service does not match the taxpayer identification number of the payee on the records that the payor or broker maintains in the ordinary course of business, the payor or broker is required to use any account numbers provided by the Internal Revenue Service to identify the payee and the payee 's taxpayer identification number.

This information must be used by the payor to locate other accounts of the payee and by the broker to locate the payors with respect to whom the payee subsequently acquires a readily tradable instrument through that broker.

A payor is required under section c 4 to notify the payee in accordance with paragraph c 2 of this section that backup withholding has begun because of a notified payee underreporting. Payors who are notified by a broker that a payee is subject to backup withholding under section a 1 C are also required to send the notice in accordance with paragraph c 2 of this section.

The payor must send the notice required by paragraph c 2 of this section to the payee no later than 15 days after the date that the payor makes the first payment subject to backup withholding under section a 1 C. The payor must send the notice of backup withholding by first-class mail to the payee at his last known address.

The notice to the payee required by paragraph c 1 of this section must state -. See section a 1 D for the backup withholding rules with respect to a payee 's failure to make the certification under section a 1 D. A notice provided to a payee on or before April 23, , will be deemed to satisfy the provisions of paragraph c 2 of this section if it informs the payee that the payor has been instructed by the Internal Revenue Service to start backup withholding on reportable interest or dividend payments to the payee.

If a payor who has started backup withholding due to notified payee underreporting on or before April 23, , has not provided adequate notice to the payee on or before April 23, , then the payor must provide notice to the payee in the manner prescribed in paragraph c 2 of this section by the date that is 45 days after April 23, The Internal Revenue Service will provide written certification to the payee that backup withholding is to stop and will notify the payors who were contacted pursuant to paragraph b of this section to stop withholding after the Internal Revenue Service makes a determination under paragraph g of this section that backup withholding with respect to a payee should stop.

The Internal Revenue Service will also notify the brokers who were contacted pursuant to paragraph b of this section that the payee is no longer subject to backup withholding under section a 1 C and that the brokers are no longer obligated to provide notices to payors under paragraph b 2 of this section. A broker who receives certification under this section from the Internal Revenue Service is not required to provide the certification to any payors to which the broker has previously provided the notice required under paragraph b 2.

If the Internal Revenue Service makes a determination as set forth in paragraph g 1 ii or iv of this section during the month period ending on October 15, of any calendar year, the Internal Revenue Service will provide the certification or notice required by paragraph d 1 of this section no later than December 1 of such calendar year. If the Internal Revenue Service makes a determination as set forth in paragraph g 1 i or iii , the Internal Revenue Service will provide the notices required by paragraph d 1 of this paragraph no later than the 45th day after the day on which the Internal Revenue Service makes its determination.

Upon receiving notice from the Internal Revenue Service after April 23, , to begin backup withholding under section a 1 C or notification from a broker stating that the payee is subject to backup withholding under section a 1 C , the payor must impose backup withholding on all reportable interest and dividend payments made to the payee during the period beginning after the close of the 30th day after the day on which the payor receives the notice provided in paragraph b 1 i or 2 of this section and ending as of the close of the day before the stop date as described in paragraph e 2 of this section.

Pursuant to section e 5 C , the payor may elect to begin backup withholding at any time during the day period described in this paragraph. In the case of a determination that the underreporting has been corrected or that a bona fide dispute exists as defined in paragraphs g 1 ii or iv of this section , the stop date is -. A January 1 following the month period ending on October 15th of any calendar year in which the determination has been made or, if later,. B The day that is 30 days after the earlier of -.

In the case of a determination that no payee underreporting occurred or that an undue hardship exists or could exist as defined in paragraph g 1 i or iii of this section , the stop date is that date specified in paragraph e 2 i B of this section. The payor with respect to any payee may elect to determine the stop date without regard to the grace period provided in section e 5 B i.

The provisions of paragraph e 2 i may be illustrated by the following examples:. The notices may be incorporated with other notices provided to the payee by the Internal Revenue Service. However, IRS. To view this page, ensure that Adobe Flash Player version 10 or greater is installed. Welcome to our Backup Withholding presentation. We hold payers responsible for knowing who they are paying. To accomplish this, payers are required to collect the legal name and taxpayer identification number, or TIN, from vendors they pay.

The Form W-9 is usually used. In general, backup withholding is required when a service vendor does not furnish their TIN timely or accurately. Payments to vendors that could be subject to backup withholding may be for: Non-employee compensation, medical services, and other types of service-based income. Payers must respond to this notice timely or may be liable for backup withholding and penalties. If you receive a CP Notice, make sure the name and TIN you used matches the information the payee gave and that it is entered correctly.

Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Taxes Income Tax. What Is Backup Withholding? Key Takeaways Backup withholding is a tax withheld by a payer for withdrawn investment income.

Some payments subject to backup withholding are interest payments, dividends, and rents. Article Sources. Investopedia requires writers to use primary sources to support their work. How to prevent or stop backup withholding To stop backup withholding, you'll need to correct the reason you became subject to backup withholding. Credit for backup withholding If you had income tax withheld under the backup withholding rule, report the federal income tax withholding shown on Form or W-2G on your return for the year you received the income.

Payments excluded from backup withholding Payments that are excluded from backup withholding: Real estate transactions Foreclosures and abandonments Cancelled debts Distributions from Archer MSAs Long term care benefits Distributions from any retirement account Distributions from an employee stock ownership plan Fish purchases for cash Unemployment compensation State or local income tax refunds Qualified tuition program earnings.

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